Welcome to Assurant's First Quarter 2020 Earnings Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following management's prepared remarks [Operator Instructions]. It is now my pleasure to turn the floor over to Suzanne Shepherd, Senior Vice President of Investor Relations. You may be begin.

Thank you, operator and good morning, everyone. We look forward to discussing our first quarter 2020 results with you today. Joining me for Assurant's conference call are Alan Colberg, our President and Chief Executive Officer and Richard Dziadzio, our Chief Financial Officer. Yesterday, after the market closed, we issued a news release announcing our results for the first quarter 2020. The release and corresponding financial supplement are available on assurant.com. We'll start today's call with brief remarks from Alan and Richard before moving into a Q&A session. Some of the statements made today are forward-looking. Forward-looking statements are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in yesterday's earnings release as well as in our SEC report. During today's call, we will refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the 2, please refer to yesterday's news release and financial supplement. I will now turn the call over to Alan.

Thanks, Suzanne. Good morning, everyone. Before reviewing our results for the quarter, I wanted to share a few comments regarding the COVID-19 pandemic and our ongoing response. From the beginning, Assurant's leadership team acted swiftly and deliberately led by our guiding principles, to safeguard our employees and their families, to maintain operations and service level for our customers and to support our local communities. Early in this crisis, we implemented a global ban on business travel and transitioned the vast majority of our workforce to work-from-home to help stem the spread of the virus in our communities and to protect our employees. For those employees who need to work from our offices or repair sites due to the essential nature of their roles, we've implemented strong safety and hygiene protocols. These measures include social distancing and the use of personal protective equipment, along with regular cleaning and disinfection of our locations based on the guidelines from The Centers for Disease Control. We are committed to doing what we can to protect our employees through this period of uncertainty, always treating them with respect and providing appropriate support given the challenges we are all dealing with at this time. To allay job security concerns as well as to continue to deliver for our customers, we've made commitments to our employees to not eliminate any roles due to COVID-19 in the short term. We've also offered financial support where it's most needed. As part of our Assurant Cares Employee Support or ACES Fund, we've launched a special COVID-19 Emergency Relief program to support eligible employees who are experiencing severe financial hardship caused by the pandemic. We've already raised more than $1 million through the support of our foundation and personal donations from our management committee, the Assurant Board of Directors and the…

Thank you, Alan, and good morning, everyone. Let's start with Global Lifestyle. The segment reported earnings of $121 million in the first quarter. Excluding a $6.7 million client recoverable in Connected Living, earnings grew 14%, primarily from continued mobile growth in both new and existing programs. Global Automotive was also a contributor, largely due to $5 million of onetime income related to client recontracting, along with modest growth from prior period sales. Global Lifestyle results were partially offset by lower margins for mobile trade-in activity, including some impacts related to COVID-19 from the shutdown of Asian markets earlier in the quarter. Unfavorable foreign exchange also impacted results. Looking at total revenue. Net earned premiums and fees were up $265 million or 16%. The increase was driven primarily by higher fee income for mobile trade-in volumes and subscriber growth across North America and Asia Pacific. Expansion within extended service contracts also contributed to growth in the quarter. Within Global Automotive, revenue grew 9%, primarily reflecting prior period sales of vehicle service contracts across all distribution channels. Looking ahead, as Alan mentioned, we are continuing to monitor trends and the impact of COVID-19 across the segment. While we believe mobile is well positioned given our large in-force subscriber base, trade-in volumes did decline significantly in the first few weeks of April, reflecting store closures and lower consumer demand for new devices. We expect volumes to rebound when stores reopen, and carriers are able to resume in-store promotional activity, although timing of such widespread recovery remains unclear. Looking at our underwriting experience, we have seen a decline in mobile claims as a result of customers staying indoors. In most cases, this favorable experience will not benefit our bottom line due to profit sharing or reinsurance agreements. In Global Automotive, near-term earnings should be…

[Operator Instructions] Your first question is coming from Mark Hughes from SunTrust.

In thinking about some of the specific impacts, I note that your fee income growth was actually quite strong in the first quarter. If we think about, I think you talked about trade-in volume down significantly in April. I think you've seen some, maybe the anticipation is that it will stabilize as things start to open up. How should we think about that fee category in lifestyle in the second quarter? Just some rough parameters would be helpful.

Mark, let me start on that. And then Richard, as always, feel free to add on some comments. If you think about mobile, one of the things we've seen over the last few years is that Q1 tends to be a pretty active quarter. And we saw that again in Q1 prior to the slowdown began the second half of March. So normally, Q2 is a slower quarter anyway in terms of buyback and trade-in activity, and that often rolls into Q3 as a slower quarter, just as people are waiting to see what the new phones might be. So I think, certainly, in the second and third quarters, we'll have less activity anyway, even if we start to see a recovery. And while we're on mobile, maybe just a couple of other thoughts about what we're seeing in that important line of business. You heard us in the prepared remarks talk about we've seen new sales slow down as stores are closed, largely across the U.S. and in other markets around the world. Even with that, we do expect subscriber growth. As we've talked about previously, we have these programs that have been launched in the last year or two that are going to continue to ramp. So even in a slower sales environment, we expect some growth in new subscribers, that will help offset the slowdown that we see in buyback and trade-in. And then longer term, once we're through this crisis, it really -- whether we have a big bounce back in buyback trade-in or whether it's just a return to normal, it's going to depend a lot on what new phones come to market, what carriers elect to do. So again, we feel well positioned in mobile even as we go through this crisis. But Richard, what would you add?

I think you covered it well. I guess the only thing I would add that might be helpful, Mark, is when you look at the line, fees and other income, obviously, there's mix of business, various clients, et cetera. But I would say rule of thumb, probably about 40% to 60% of that fee income is made up of the trade-in upgrade volumes that we have. So maybe that helps a little bit.

Yes, the renters insurance, I think you saw some drop off, but then it's stabilized. How much is that influenced by new sales? You've been really growing in a pretty steady range in the mid-single digits, some parameters on Q2, Q3 would be helpful.

Yes, let me start again. Similar to mobile, if you look at multifamily, it's a business that is really driven by people doing something, right? So in the March time frame, second half and into early April, we didn't see people moving. And so we don't have an ability to make a new sale. Now again, those moves may just be delayed and it could return if we get through the crisis in a reasonable time period. The other thing that's unique on multifamily is we are seeing some requests for premium deferral. And that's either being driven, a few states have mandated that, others were voluntarily providing it. It's not significant so far to our overall block, but it is something we're watching, and we are putting up an appropriate reserve in the event of people not being able to pay for their insurance that we're providing. If we look longer term in multifamily, I think we're pretty optimistic about that business. If we get into any kind of downturn, people tend to rent more. We saw this in the last downturn, which has obviously been positive for that business. But more importantly, we're still early in rolling out our point of lease capability, which helps us provide a better experience and a greater attachment rate. We also see a major opportunity around the connected apartment as people, particularly look what's happened now, connectivity matters more than ever. So in both multifamily and in mobile, we're focused on ensuring we're there, we're delivering for our customers. We've been able to sustain our service levels. We're still repairing cellphones and getting them back in a timely basis. And we're doing all we can to help out our customers, both mobile and renters and, of course, across all of our businesses.

I think I might have asked this last quarter as well, but talk about the potential pressure on investment income from lower yields and how that influences the automotive business? Are you going through the process of adjusting your pricing to take into account the lower yield, so you generate adequate returns in that business?

Richard, why don't you take that one?

Well, I guess the first thing I would say is the business that's on the books today has a relatively long duration, I guess, let's call it, 3 to 5 years. So that business is fairly well matched in terms of asset liability matching. So really, what we're talking about is that income will roll through. And as we have new sales, those new sales will be put up at the new level of interest rates. Obviously, short-term interest rates are very low. Who knows where they'll go over time. But you're exactly right. We would have the opportunity to work with our clients and as there are new sales, to look at what the pricing on the various products would be. I guess the other thing I would add, Mark, is that a lot of the business that we do in the auto sector is reinsured to captive clients as well. So there is a straight, a strong alignment of interest for us to really provide the customer with the best product, competitive product at the right pricing.

And Mark, maybe the last thing I'd add in both Auto and in Preneed, these are our 2 businesses that have more exposure to investment income than our other businesses. We are hard at work on adding in other sources of revenue and fee income. So for example, on Auto, we started rolling out, pre-crisis, our pocket drive, kind of our onboard technology, and we're looking at other things like prepaid maintenance, which we're now driving into our programs. And in Preneed, we've been rolling out an executor assist product, which is another fee income generator that allows us to help people at time of need, really manage it. So we're working, just as we've done in mobile and elsewhere, to create some fee income streams in addition to the traditional product.

Our next question is coming from Brian Meredith from UBS.

A couple of questions for you all. First, on the global housing business, I'm just curious, number one, when could you potentially see an increase in placement rates? And number two, do you have any sensitivities that you've done around maybe macroeconomic statistics? And when or the magnitude of placement rates kind of increasing in a situation like this or something like mortgage delinquencies, unemployment, that kind of stuff, anything that you can kind of give us so we can figure out maybe some sensitivities here?

Let me maybe start with kind of the short term, and then I'll go to the long term. First of all, lender-placed, it's an important product for the mortgage industry. We're effectively there to support the functioning of the market, to protect policyholders and lenders. But in the short term, we don't really see a lot changing. If you look at the mortgage forbearance that's underway, it's not going to have a big impact on us one way or the other. And so really, if we do get into a downturn, our product tends to be placed later in that cycle. So someone needs to move into seriously delinquent and often into foreclosure. So if you look at the last downturn, which is really the data point we have, which was an extreme housing market downturn, today, we're at about 1.5%, 1.6% placement rate. In the last downturn, we peaked at about just under 3%. So that gives you some sense of at least what happened in the last downturn. Who knows if we'll have a downturn here, and I certainly hope we don't. But if we do, our business is strong. It's well positioned, and we've made significant advancements in the last five years on our compliance, our tracking infrastructure. And so we feel very well positioned if we do have a downturn, but I wouldn't expect to see anything that is material in 2020.

I guess, I'm more thinking about mortgage delinquencies. I mean, if you talk to some of the mortgage insurance companies, they are talking about mortgage delinquencies kind of picking up here, and I'm not sure if you've had any sensitivities around that?

I think it's really early days, and we'll have to see how it plays out. But even if we are starting to see what's going on with mortgage delinquencies ticking up, for us, it won't affect our placement for six to nine months. So it won't be a driver for 2020. But if we do have that downturn, it will be a significant roll for us in 2021 and beyond. And as I mentioned earlier, we feel very well positioned. Because of our kind of industry-leading capabilities and compliance, we've been able to renew and, in many cases, early renew the vast majority of our book of tracked loans. So we're well positioned if it does develop this way.

And then just, I'm just curious, I know there's a profit-sharing component to the Auto Warranty business. But is there any impact that we could potentially see from delayed warranty work?

For both of our lifestyle businesses, kind of auto and mobile, the majority of our risk is reinsured back to our clients. So we really, although they report as premium, we tend to really operate more as an administrator, and we receive fees for doing that effectively. So we're not seeing, though, for example, in Auto, service remains open across much of the U.S. Now what's been shutdown is sales, but service is viewed in most states as an essential service. So if you look at our activity levels in terms of servicing, we don't see a big dip. So it's not something that we're focused on as a risk.

Our next question comes from the line of Michael Phillips from Morgan Stanley.

I want to follow-up on an earlier question and your comments on continued growth in the covered devices. And I guess the mix between, you talked about may be able to add new subscribers versus the kind of a fall-off in trade-ins. Maybe first off, just a little more detail on those new subscribers, where that comes from? And then secondly, what's the typical mix, I guess, of your growth there between the new subscribers versus the trade-ins, with trade-ins falling off in the near term? So what's the typical mix there? And then just maybe more color on the new subscribers that you expect to get?

So the new subscribers are the biggest driver of that business over the last couple of years, and they're really coming from the new clients and programs that we've talked about that have been launched in the last couple of years. So for example, KDDI in Japan, Comcast and Charter in the U.S., et cetera. And those programs, once we launch them, it generally takes anywhere between three to four years. You need to go through a phone handset replacement cycle. So even if there are fewer sales now in the crisis, sales are still happening to a degree. So that's why they're going to grow. Buyback trade-in was a big driver of our business back in like '15 and '16 when we really ramped it up. Over the last few years, it's been more stable. We haven't, in key markets like the U.S. and Japan, you've seen the ownership of handsets lengthening. So people have gone to owning a handset for 3 years or in Japan 4 years. That's offset the growth we've had in subscribers. So that business has been more kind of flattish over the last couple of years. Now if we look forward, we see a significant wave of buyback trading coming. It may be delayed a little bit by the current crisis. But if you think about 5G, when that really starts to roll out, and it was going to start to roll out later this year in the U.S. We'll see how widely that really happens. That will create a wave of activity for the next year or 2 in buyback trade-in, and we're well positioned. The other important thing in mobile that's really driven our growth is we've been adding more services per subscriber. So if you recall, when in the early days, we have 1 service, now often, we have up to 6 different sources of value with every agreement where we're providing things like Premium Tech support, our onboard diagnostic technology, Pocket Geek, we're doing the buyback trade-in. And increasingly, we're doing an extended warranty for year three and year four of phone ownership. So overall, again, I think we're encouraged by our position. We expect to have continued growth that just may not be at the same level this year as we've seen in past years.

I guess have you seen any signs of, on the mobile piece of customers that are dropping their coverage more than usual? Is that happening at all?

No, we haven't seen that really at all. If you look at what's happened in prior downturns, our products because they protect really essential equipment for consumers, whether that's a car or a phone, they tend to be very sticky. And in downturns, the needs tend to be even higher. So we haven't really seen anything. It's certainly something we watch, but we're not seeing any trend there.

I guess last one, if I could. On the auto side, if customers become delinquent on their auto loans, what's the implication to you guys there for the Warranty business?

I think the short answer is none. It's a single premium product. So we're collecting our funds at the beginning of the sale. So I don't think it affects us at all.

Our next question is coming from Gary Ransom from Dowling and Partners.

So I wanted to ask about consumers' behavior. And I know we, you mentioned how you're sharing some of the benefits on the mobile side. But you've got the decline in revenues, but is there any places across your businesses where you're actually seeing some sort of benefit, maybe on the LPI side, there everyone is staying home. So you don't get as many losses there. Can you comment on that at all?

Well, the first thing I'd say is it's really early in this crisis. So consumers have been adapting and adjusting for 7 or 8 weeks now. So it's early to see what really might happen. So what we're really focused on is, first and foremost, being there to service customers. If you think about it, we have this installed base of 300 million or so customers, they still need our support, whether it's for their phone or their car or their renters insurance, and we've been able to quickly pivot to work-from-home for most of our operating roles, and we've been able to meet and maintain meeting all of our service levels, which is really impressive and a huge thank you to our employees across the globe who've done that. So that's important. Where might we see trends? I think it's too early to say. What we've seen is for most things consumers are just being cautious about going out and buying anything at the moment, either because the stores are closed or they don't feel safe going out. We saw the lows so far in this crisis, the first week or two of April, with activity levels dropping 40% or 50% across a lot of the channels we serve. We're starting to see a little bit of recovery in the second half of April, although still well below pre-crisis levels. So again, if you look at our businesses, I think we're well positioned to weather this crisis quite well. We've got that installed base. I mentioned we have the diversity of portfolio. As you mentioned, we have LPI, which will be a countercyclical hedge if we get into that kind of downturn. We've got the embedded earnings on the balance sheet in Auto and Preneed. We do have things like if we do end up with an economic downturn out of this crisis, Auto, for example, generally, you have more used car sales in that environment. And if we sell on a used car, we start to earn much sooner than we do on a new car. And we've got that strong balance sheet and conservative investment philosophy that Richard talked about. So at the end of the day, we're going to continue to monitor all these trends, but we feel well positioned to be there to support our customers and to weather this crises well.

I also wanted to go back to something you said in your prepared remarks about business interruption. Can you elaborate on where that exposure was arising from?

Richard, do you want to take that out?

Yes, if you remember last year, we had talked about the small commercial businesses that we were underwriting. So it really comes from there. On the other hand, what I would say is, as you heard in the prepared remarks, there's only about 8% of the portfolio remaining. It's been in wind down and run off for quite some time. So it's a small amount and also the products that we've sold have specific exclusions in them. So that's where that comes from, Gary.

And then I also wanted to ask about the caution on finances. On the one hand, you're cautious. On the other hand, you did buy back a little bit of stock. You made an acquisition. There's a lot of things that are still moving forward. Maybe this is a layup question. But can you comment on the things that haven't changed? I mean, what is, what continues to go forward despite the COVID-19?

The way we're approaching this, and we are, as we mentioned, fortunate to have an installed base and well positioned to manage through this crisis. So we're trying to strike an appropriate balance between the short-term and being cautious in the long-term where we, when we come through the other side of this, if you look at where we've been, we had above market profitable growth. We have a long history of very strong capital return and not, we don't see that changing. When we come out the other side of this, we're going to be as strong with the same kind of track record in front of us as we've had in the last few years as a company. So what we're trying to do is we're being prudent. So things like deferring expenses, holding off on some hiring, being cautious on preserving capital just because you never know. But we are making strategic investments. Now for example, the investment in AFAS, that is one of the industry-leading franchises in Auto. It really fills in for us the geography, particularly in Texas and the Southwest. It also brings capabilities that we can enroll across and it's a very low relative execution risk for an M&A deal because we know the company well, and we know the business well. So we went ahead and made the decision. And that dialogue has been ongoing with them for quite a while. So we felt it was appropriate. We're also investing, one of the interesting trends that was already happening, but will be accelerated by COVID-19 is the shift to digital, both on sales and service. And we've been investing against that for years. But in this crisis, the acceleration of that has moved forward dramatically. And we've been able to be there and support our clients with that. So we're fortunate we've made that investment, but we're going to continue to invest to move more things to digital. So we're making investments like that, that are against the long-term trends and our kind of strong market positions. And then we're just being cautious because what we don't know and nobody knows is the duration of how long this might go on and whether we'll have multiple ways of this going on. So we're trying to strike that balance. But we feel really good about where our company is going to be at the other side of this crisis.

[Operator Instructions] Our next question is coming from Mark Hughes from SunTrust.

You mentioned the cut down of the Asian markets is perhaps influencing your trade-in activity. Did you measure or any specific numbers you can share about how much of an impact that was?

So what you're referring to is, in the early days of the crisis, some of the phones that we end up repairing and not using back in insurance claims are sold around the world. The Asian markets are one of the big markets for that, and that was a really shut down kind of the February, March type time frame. We haven't sized it, but you can see some of the pressure in Q1 lifestyle margins. We're really on that. It was the fact we had to find alternative channels on short notice to be able to get rid of those phones. Now the positive is those markets are back open, we just don't have the same activity level that we would have had in a pre-crisis environment.

And then how does the lender-placed insurance work with the forbearance plans? People are under forbearance and it goes 3, 6 months. How does the lender-placed insurance interact with them?

Yes. I think the important thing to remember first is that the majority of mortgage loans aren't in forbearance. So I think, I haven't seen the statistics this week, but it's under 10% that are in forbearance. So for 90%-plus of our business, it's just as normal. If someone ends up being seriously delinquent or out of the home, it's the same process we've always had. For mortgage forbearance, obviously, nothing happens, right? So as long as there are mortgages in that stage, it's not going to move into serious delinquency. So for that small sliver of the market, we will still be tracking alone. We just won't be doing anything while the mortgages are in forbearance.

And then who is actually covering the, providing insurance on the property if it's in forbearance? If the homeowners insure is -- I'm not sure how long they're going to provide a grace period to the consumer or the borrower? But at some point, one would assume they're going to drop off. So does the bank assume the insurance coverage? How does that work?

No. I mean...

No, it's a good question, Mark. It's early days. For now, I think the majority of voluntary carriers are still providing that insurance. And there's not a rush by the voluntary players to cancel people's insurance at the moment. If they were canceled, we would then trigger a letter cycle likely our normal process. At the end of the day, that service we provide is critical for the mortgage industry and we would step in. But for now, we're not seeing anything really happening with the forbearance mortgages that are in the market.

But if they were in forbearance, but the underlying homeowners insurance had dropped off, then your letter cycle would kick in?

And our primary focus, though, across all these businesses is continuing to be there. And what I'm most proud of, many things I'm proud of how our employees who responded here is we really have been able to sustain so far all of our service levels and continue to be there. For example, in lender-place, we do a lot of the processing, what are called loss drafts and supporting consumers who are repairing their homes, we're functioning as normal, even in this environment there. So I'm very proud of that.

All right. I think that's the end of questions. I want to thank everyone for participating in today's call. We will update you on our progress on our second quarter earnings call in early August. In the meantime, please reach out to either Suzanne Shepherd or Sean Moshier with any follow-up questions you have. Thanks, everyone.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.